Regenerative Finance (ReFi) is a growing Web3 field that seeks to rethink how we approach finance, investing, and sustainable economic development. It takes a holistic approach to finance and development, considering the environmental, social, and economic impacts of financial decisions, and aims to create a regenerative economic ecosystem. ReFi builds upon earlier advances made in Decentralized Finance (DeFi), a field based on blockchain technology that seeks to create a more equitable financial system. ReFi utilizes web3 technology for public goods and regenerative projects and is driven by trends in understanding economic interdependence with nature, the fragility of extractive economic systems and supply chains, and using blockchain technology to enable natural regeneration for climate causes at scale.
ReFi aims to correct many of the excesses of globalization we have seen over the past 40 years and return the focus back to more local communities, build resilient supply chains, and create economic systems that prioritize community goals over shareholder growth. Decentralization is key to the value ReFi protocols, decentralized autonomous organizations (DAOs), and regenerative projects seek to articulate. Blockchain technology offers a way out of this coordination trap, with smart contract enabled programs enabling value exchanges occurring peer-to-peer, without an unseen counterparty. Smart contracts lead us directly into another key pillar of ReFi: Tokenization. Tokenization of digital and real-world assets is enabled by smart contracts and allows for liquidity of formerly static and illiquid assets, while also enabling independent verification and real time auditing on the blockchain.
One practical implementation of ReFi is carbon offsets. Carbon offsets are defined as anything that captures carbon and takes it out of the atmosphere, and a carbon credit is a representation of said offset. These credits are traded on the carbon credit market and represent a company’s “cap” in cap and trade, or the limit or carbon that they can emit. There are two main types of carbon credits, nature based and technology based. Carbon markets, or greenhouse gas trading systems, are markets that trade in credits representing carbon reduction. Environmental markets have been shown to work and have been in place since the Kyoto Protocol. Unfortunately, the voluntary carbon market suffers from lack of oversight and many claims for carbon reduction are not verified. To allow the field to grow in healthy ways and protect users, ReFi needs a common-sense legal framework.